and good evening. I'm CJ, Head of Investor Relations at Strategy. I'm excited to moderate Strategy's second quarter, 2026 earnings webinar for you. We will start the call with a 60-minute presentation, starting with Andrew Kang, followed by Fong Lee, and then Michael Saylor. This will be followed by a 30-minute interactive Q&A session with four Wall Street equity analysts and four, Bitcoin analysts. Before we proceed, I will read the safe harbor statement. Some of the information we provide in this presentation regarding our future expectations, plans, and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including fluctuations in the price of Bitcoin and the risk factors discussed under the captioned Risk Factors in Strategy's quarterly report on Firm 10Q filed with the SEC on May 6, 2026, and the risks described in other filings that Strategy may make with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today. With that, I will turn the call over to Andrew Kang, CFO of Strategy.
Thank you, CJ, and thank you all for joining our call today. Moving on to the first slide, we now hold 843,775,000 Bitcoin, representing approximately 4% of all Bitcoin that will ever exist. Bitcoin per share is currently 203,683 sats, which remains one of the cleanest measures of how we create long-term value for shareholders. Our market cap is approximately $38 billion, and year-to-date, we have raised $17 billion of capital across common equity and digital credit. That capital gives us the strength to continue building our overall Bitcoin holdings, manage our capital structure, meet our dividend and interest obligations, and support the growth of our digital credit platform. On this slide, we show that we adopted Bitcoin as a treasury asset beginning in Q3 of 2020. We have accumulated more Bitcoin in every single quarter across 113 acquisitions. And today we hold again, 843,775 Bitcoin with a Bitcoin reserve value of approximately $55 billion. Our total acquisition cost is approximately $64 billion and our average purchase price is roughly $75,000 per Bitcoin. Strategy is now the largest institutional holder of Bitcoin in the world. Our holdings are larger than the largest Bitcoin ETFs shown here. They're larger than the estimated holdings of any nation state and larger than the major DeFi custody balances. That scale matters and it reinforces strategy's unique position in the digital assets market. We are not just participating in institutional Bitcoin adoption, we are leading it. Doing so as an operating company with access to the capital markets, a growing digital credit platform and a long-term objective of increasing bitcoin per share for our shareholders. Now turning to the balance sheet, Q2 reflected active execution across all of our operations and our capital structure. Digital assets ended the quarter at $49.7 billion, having acquired a net 83,901 bitcoin during the quarter, with the total balance sheet holdings now slightly lower due to the lower price of bitcoin as of the end of q2 cash and short-term investments increased to 2.4 billion dollars as of the quarter end and now even further to 3.75 billion dollars current quarter to date and now we hold over two years of dividend interest coverage and also reflect our goal of continuing to replenish the usd reserve to support our digital credit instruments long-term debt declined from $8.2 billion to $6.7 billion, driven by the $1.5 billion repurchase of convertible debt, which we executed at an 8% discount in Q2. And preferred equity increased from $9 billion to $14.4 billion, driven by the strong issuance of STRC during Q2. We began the quarter with just over 762 000 bitcoin with a market value of 51.6 billion dollars during that quarter we accumulated more bitcoin adding in that 83 901 bitcoin and an average price of approximately 75 500 at quarter end we held 84 000 846 000 bitcoin and the quarter end bitcoin price was approximately $58,700, resulting in a Q2 unrealized fair value loss of approximately $8.3 billion. After quarter end, we have seen a recovery in the market value of our Bitcoin holdings. Quarter to date through July 27th, we did sell 2,225 Bitcoin for approximately $135 million. And with Bitcoin price increasing to approximately $65,000 per Bitcoin, we currently would reflect an estimated fair value gain of about $5.2 billion on our total holdings. And our digital assets balance sheet will have increased to approximately $54.8 billion. As of July 27th, our total reserve, which includes our BTC reserve and our US dollar cash reserve was 58.5 billion dollars with a net reserve of approximately 36.3 billion dollars which nets out our out-of-the-money convertible debt and preferred equity balances here amplification calculated as our btc reserve of approximately 58 billion dollars divided by net reserves of $36 billion is over 1.5 times. Amplification represents our total Bitcoin as a multiple of reserves remaining after taking into account our debt and preferred claims. We have $15.4 billion of preferred equity outstanding and $6.7 billion of convertible debt outstanding and a low net leverage of 5.4%, which reflects our debt less our cash reserves divided by our BTC reserve. At a current Bitcoin price of roughly $65,000, our approximately $55 billion of Bitcoin reserves provides an 18.5X BTC rating against our net debt of about $3 billion. In an extreme stress case, as you can see here in the middle of this slide, even with a 95% Bitcoin price decline to roughly $4,000 per Bitcoin, our converts would remain fully covered at a 1.0X BTC rating. Over time, our plan remains to equitize, repay, or refinance existing convertible debt while continuing to maintain strong collateral coverage. And as we demonstrated in Q2, we believe the market remains open to all of these options. We plan to remain patient, monitor the market conditions, and continue to focus on the overall liability management of our outstanding debt. Turning to the Q2 financial results, we reported an operating loss of $8.3 billion, a net loss of $8.6 billion, and an EPS of negative $24.45 per share. These results were driven by the quarter-end non-cash fare value mark-to-market of our Bitcoin holdings. Our focus remains on the long-term drivers we can control, which include capital allocation balance sheet strength the strengthening of our digital credit instruments and increasing bitcoin per share over the long term and i mentioned earlier quarter to date with bitcoin price having increased to closer to 65 000 our current fair value mark to market of our holdings would reflect about a 5.2 billion dollar gain turning to our bitcoin kpis as of july 26 Bitcoin for share was 203,683 sats compared to about 191,904 sats in July of 2025, which is an increase of about 6% year-over-year. Year-to-date BTC yield is currently 4.5% compared to about 22.8% for the full year 2025. BTC gain is approximately 30,000 Bitcoin year-to-date, which is about 30% of last year's full year gain. And in dollar terms, BTC dollar gain is approximately $2 billion year-to-date compared to about $8.9 billion for the full year 2025. Despite the significant drawdown in BTC price year-over-year, we continue to execute positive performance across all of our core KPIs. Since 2020, our Bitcoin per share has increased from approximately 46,000 sats to 203,000 sats, which is more than a 4x increase over that period. And in 2006, we have delivered, as I mentioned, 4.5% BTC yield year to date. As you can see here, historical annual BTC yield performance does move sort of in conjunction with Bitcoin price. In Bitcoin bear markets like we saw in 22 and 23, BTC yield was lower than the bull market years of 24 and 25. That being said, BTC yield this year does have the potential to outperform the prior bear market if BTC price improves and through the support and strengthening of our digital credit instruments. On this slide, we show here in Q2, within Q2, Bitcoin per share increased approximately from approximately 201,170 sats at the end of Q1 to approximately 210,824 sats at the end of Q2. Despite the lower price of Bitcoin and the overall market volatility in Q2, the quarter's BTC yield of 5% outperformed the Q1 BTC yield of 3.2%. So we are continuing to make good progress. And lastly, I will end with a quick snapshot on the most recent view from our equity analysts. We added two new covering analysts from Barclays and Siebert for a total coverage of now 16. Across the firms shown here, the average analyst Bitcoin price target for those that have one is approximately $98,000. The average MSTR price target is approximately $296 and all with corresponding buy ratings. While we do not endorse any third-party forecasts, it's important to note that the banks are increasing their engagement with Bitcoin, with digital capital, and with a focus on strategy's role within that market. I think the growth also reflects the deep and growing demand from investors as well for independent institutional views on Bitcoin strategy and digital credit, and it helps deepen investor understanding of our business model, our capital structure, and the long-term value we are pursuing for our shareholders. So with that, I thank you all for your time, and I will turn it over to Fong for his remarks.
Thank you, Andrew. Thank you everyone for joining us this evening. I'm going to provide an update on our capital market strategy and our capital markets programs. And before I go into some of those details, I do also want to recap Q2 2026. We acknowledge that it was an up and down quarter for Bitcoin and our common equity and our preferred have gone down in that period of time. But if I look at the key metrics that we look at for performance and health of the business, things are, generally speaking, positive. Our Bitcoin holdings over the course of the quarter increased 11 percent from 762,099 Bitcoin to 846,000 Bitcoin. We reduced our debt outstanding from $8.2 billion to $6.7 billion. And on net debt basis, we reduced it even more. this was down 18%. Our US dollar reserve is up from $2.1 billion to $2.4 billion at the end of Q2. And as Andrew noted, we're now at $3.75 billion. That's a 12% increase quarter over quarter. And our Bitcoin per share, potentially our most important of our metrics, went from 201,170 satoshis to 210 824 satoshis so a five percent increase so many of these metrics show health in the overall business how are we able to do that three months ago in our earnings call we said that we were adding engines to the strategy playbook if you will we went from one-way capital issuance buying uh bitcoin through active issuance of mstr of our preferreds and our convertibles to what we call active captive active capital management we're able to sell mstr to buy bitcoin us dollars debt prefs we're able to sell our prefs to buy bitcoin us dollars debt mstr and we're also able to sell our bitcoin to buy us dollars by debt by press by mstr we're able to use those us dollars to pay off dividends and to strengthen our balance sheet we continue to be net buyers of bitcoin and net issuers of stretch we want to be the largest buyer of bitcoin in the world and the biggest issuer of digital credit in the world and year to date 2026 we are proven to be just that. We bought 174,895 Bitcoin year-to-date 2026. We sold 3,620 Bitcoin during that same period of time. We bought 48x more Bitcoin than we sold, and we increased our Bitcoin 25% since the beginning of 2026 until now. When it comes to digital credit and stretch, we issued 7.52 billion dollars of digital credit we repurchased year-to-date 25 million dollars we issued 300x more digital credit than we repurchased and we increased stretch's notional 250 percent since the beginning of the year so i think we are carrying through on our stated objective to be the largest net buyer of Bitcoin in the world and the largest net issuer of digital credit in the world. Another way to think about a robust access to the capital markets is to look at what we've done year to date 2026. So through seven months in 2026, we've now issued $17 billion dollars a capital as you can see here that's approaching what we did in 2025 primarily used to buy bitcoin and you'll also see the percentage of capital that we issued that was digital credit specifically primarily stretch was 44 of the total capital we issued versus 28 last year if you look at this same information on a quarter to quarter basis q2 we issued more capital than we did in Q1 of last year, Q1 of this year, and also we issued more capital in Q2 2026 than we did, or we raised more capital in 2026 than we did in any quarter of last year. So, $8.4 billion total, of which $5.5 billion is digital credit. Q3 2026, right, so this is the month of July of this year, we've issued about $1.3 billion of common equity. And of course, we want to see preferred equity added to that stack too. And so I'll talk a little bit more about why that's important. We've talked about the flywheel in the past, right? Our overall objective is to double Bitcoin per share in seven years through digital credit. And why is this important we want digital credit to work because we're able to sell digital credit to buy bitcoin that generates amplification to the company that would increase our bitcoin per share for the company especially as bitcoin increases and allows the company ultimately to do what we have been doing and what we intend to do which is to outperform bitcoin right what are the inputs that can help us flex these levers decreasing our cost of credit and we'll talk about that in a little bit, higher digital credit sales, this is selling more stretch, and a higher MNAV through accretion of our equity, our common equity MSTR. So let me talk about the digital credit capital framework and how do we get this flywheel working even better than it has in the past. I'll start with our corporate objective. It's for stretch to trade at $99 to $100 over time. And we recognize that that has not occurred over the course of the last month. Stretch is now trading at about $89.50. Our goal is to get this back to $99 to $100 because that helps our digital credit engine work. And it helps us increase Bitcoin per share and ultimately accrue value to our common shareholders. So about a month ago, we issued five pillars that are going to strengthen Stretch and strengthen digital credit. The first major pillar is the U.S. dollar reserve. We recognize the importance of the U.S. dollar reserve to our digital credit shareholders. We had decreased that over time in the month of June, and we realized that it's important to keep it strong. And so we've increased it now to $3.75 billion, which is about 2.1 years worth of dividend coverage, dividend interest coverage, and we're going to keep one year of minimum. And I'll talk a little bit more about that. in a minute. Bitcoin monetization, selling Bitcoin for three purposes. One, to fund U.S. dollar reserves. Two, to fund dividends and interest expenses. And three, to support our repurchase programs. And those were our third and our fourth pillar, the ability to repurchase digital credit up to a billion dollars. We've repurchased $25 million so far a year today. And to repurchase mstr up to a billion dollars and the fifth and last pillar is to manage our stretch dividend in a way that it's thoughtful and supports the price of stretch while also reducing our dividend burden and we can review that monthly the good news is we've built now an all-time high u.s dollar reserve right so we started at the beginning of the year in january at 2.25 billion dollars we drew that down to pay down 1.5 billion dollars notional of our 2029 converts to 871 million dollars we recognize that that was not the right level to support stretch and to support our digital credit and therefore in a pretty short order we've built it up in about two months back to 3.75 billion dollars two things i'll note one is that as the highest our u.s dollar reserve has ever been and two that on a duration basis which is how many years of dividend interest expense coverage we have our high in january is 2.7 years our low end of may was 0.5 years we're now back to 2.1 years and our target is to be somewhere between two and three years i talked about our bitcoin monetization program right our intent is to sell bitcoin for three reasons when we think it's appropriate for the company. One, fund the US dollar reserve up to $1.25 billion. That would take our US dollar reserve up to $5 billion if we were to do that fully using Bitcoin, which would take us up close to three years. Two, fund dividend interest payments of $1.76 billion currently annually. And we've used Bitcoin sales to fund some dividend payments in the last month or so. And three is to fund up to $2 billion in our repurchase programs. So let's talk a little bit about more about Bitcoin monetization and Bitcoin sales. This is a subject of much discussion during the month of May and June. So I thought I would provide some more clarity onto why we did it and what we believe the result to Bitcoin was when we did this. First, our first Bitcoin sale in the week ending May 31st was 32 Bitcoin. That was 0.004% of all of our Bitcoin holdings. Why did we do it? We did it to inoculate the market and test our processes. The average cost basis of that Bitcoin is $125,464, which came to a $4 million total cost basis with a proceeds of $2 million and the average sale price is $77,135. We took about a $1 million realized loss in that and that gives us a potential tax asset, assuming a 29% corporate tax rate of about $400,000. Our second Bitcoin sale was about a month later, in the week ending July 5th, we sold 3,588 Bitcoin, about 0.4% of our Bitcoin holdings, so about 100x more than what we sold the month before. Why did we do that? We did that to fund our PREF dividends that were due June 30th of 2026. The average cost basis of that Bitcoin, $116,000, which came to $418 million. The sale price was $60,000. And so our proceeds are $216 million, which we used again to fund our dividends on our preferreds at the end of June. And we took a realized loss of $203 million, which allowed us to potentially book a tax loss of $59 million. If you see here, we have 843,000 Bitcoin. And you can see the size the bars of our bitcoin sales are almost not noticeable compared to our total bitcoin holdings of course and the question is sorry and so the next topic i'll get into is what is our overall potential tax benefit we showed this slide last quarter of all of our bitcoin we have about 18.5 billion dollars in unrealized losses which equals a potential benefit of 5.4 billion dollars uh on our taxes so selling high cost basis bitcoin uh at a low uh at a low price gives us the potential to take tax losses that can then offset future capital gains so did our bitcoin sales have an effect on bitcoin price right we have two data points so i don't think we can uh make a definitive statement but i thought it'd be useful to look at these two data points in a little bit more detail our 32 bitcoin sale was about two million dollars that week and what happened after we sold the two million dollars of bitcoin well in the week that we sold the two million dollars bitcoin price went down four percent the week after we announced the two million dollar sale bitcoin went down 11 and as a reminder that was 0.001 percent of the liquidity of Bitcoin that week. So we were 0.001% of the Bitcoin trading volume when we made those sales. All right, one month later, we sold about 100x more Bitcoin. And the week that we sold 100x more Bitcoin, Bitcoin price went up 6%. The week after we announced it, Bitcoin price went down 1%. And we were 0.104% of the liquidity of Bitcoin in the week we sold. Did we have an impact on the price? Based on the liquidity, I would think not. Based on sentiment, perhaps. We'll continue to study this, but we thought it would be useful to share a couple of the data points. Another way to look at this, the bigger question we sometimes ask is, is strategy propping up Bitcoin price with our purchases? is strategy moving down Bitcoin price with our sales? Does Bitcoin need strategy? And I think we've said many times strategy needs Bitcoin. So how would I look at this? As an example, average Bitcoin liquidity has been about $26 billion of trading on a daily basis. If we look at the week where we bought the most Bitcoin in the history of the company, our average daily purchase was $363 million. That's the max, right? In that particular week, we were 1.42% of the trading volume of Bitcoin. If you look at the last 12 months, we would average about $56 million of Bitcoin purchases a day, which sounds like a lot. It is a lot. But as a percentage of the $26 billion dollars of daily liquidity, we were 0.22% of the trading volume of Bitcoin. Bitcoin is extremely liquid. We are a large purchaser, but looking at these numbers, I would say we were not a material purchaser of Bitcoin. What about when we sell? The most we sold so far is $19 million a day. And in that particular week, that would mean that we were 0.08% of the trading volume of Bitcoin. And that's a pretty small number. And if we were to sell to satisfy our $1.7 billion of dividend obligations, that would average to about $5 million a day. And that would be 0.02% of Bitcoin liquidity. All right. So my takeaway from this is we are a heavy participant in the Bitcoin market when we buy, but still not a material amount of the overall Bitcoin market. And we are a very, very small participant in the Bitcoin market when we sell. Back to the other pillars. So repurchasing up to two billion dollars of our securities. All right. So this is one billion of our digital securities. We have a REACH purchase program now authorized. Thirteen billion dollars is our market cap right now of our digital credit. A billion dollars has been authorized. We've said we'll prioritize stretch right now. When would we buy stretch? When it's trading at a discount to par. How much of a discount that's subject to management discretion? why might we buy it we might buy to reduce our annual dividend or we might buy to strengthen the quality of digital credit and we might buy to capture net bps secretion right on mstr is about 38 billion dollars in market cap we have an authorization to buy back up to 1 billion dollars we have not used it yet why might we buy it or when might we buy it we might buy it when it's trading at a discount to net Bitcoin per share, which we have not seen that occur in a sustained basis yet this year. Why might we do it? Because we think it would create long-term value by capturing that BPS accretion. How would we do this? We could buy in the open market. We could buy via block trades, tenders, exchange offers. And what's the timeframe that we might do this? We have no obligation, no expiration. We can modify, suspend, or terminate this program at any point in time. So how do we get stretched back to par? That is the focus of the company. That's the focus of the leadership and the management team. To climb stretch back to $99 to $100, we can adjust the US dollar reserve. You've seen us actively do that. We can maintain the stretch rate. We're not planning on decreasing the stretch rate to bring it back to par. And we found that increasing the stretch rate is not really an effective way to bring it back to par. So our current plan is to keep the rate right at 12%. And of course, we can buy backstretch, which we've seen us start to do. When we get back to par, we've learned a lot. We've learned a lot about how stretch trades. We've learned a lot about the types of people buying stretch. We've learned a lot about the overall characteristics of digital credit, leverage, what layer two players do on top of it. So what would we do? We could manage the ATM issuance, right? we could not issue necessarily as much as we have in the past we could adjust the stretch rate in this case down right if we see billions of dollars of demand for stretch and we don't want to grow digital credit too quickly we could adjust the rate down from 12 to 11 to 10 or whatever we see fit we can manage the btc reserve meaning we could decide how much of our stretch proceeds we put into bitcoin historically we put it all into bitcoin but we don't necessarily need to do that, we could put some of it into increasing the U.S. dollar reserve. And of course, we can manage our overall capital structure. We can manage our convertible bonds. We can manage what else is in that capital structure. And then we can manage some of the policies, including the one that I've discussed. The stretch rate is adjusted by observing multiple signals, right? We have a 12% annualized dividend rate right now. And when we return to par, we'll look at things like trading levels, market yields, the Bitcoin market, the U.S. dollar reserve coverage, and the capital structure to determine what the right rate is. And I want to reiterate our capital markets principles that we've shared in the past, and there's six of them. One, we're going to continue to create long-term value for MSTR. That's the most important of our principles, and we're going to do that primarily by increasing Bitcoin per share. How do we increase Bitcoin per share? We're going to do the trading characteristics and learning from that. We're going to responsibly reduce the convertible market debt based on market conditions. We did that in Q2, right, and we would consider doing that on a go-forward basis. We'll monitor stretch demand and credit risk to determine the size of the U.S. dollar reserve. I think we've learned from Q2 that keeping a robust two to three-year U.S. dollar reserve makes sense, and our minimum will be one year. We'll adjust the amplification based on market conditions uh this price of bitcoin is a big factor to the amplification and we'll sell bitcoin when it's advantageous to the company which we've started to do and you could expect that we may do that on a go forward basis too so with that i'll pass it over to uh michael sailor thank you fong um i want to spend a moment talking about our credit products and our business model.
So let's start with digital capital. We use Bitcoin as digital capital, and we just upgraded our website, and we're making available a whole set of metrics for Bitcoin investors to track Bitcoin as the investment. So what you'll see here is on our website we're now tracking the real-time bitcoin price and the market cap but we've also added the 200-week moving average we we view that as being something akin to the basis in bitcoin or the book value with bitcoin uh and a lot of bitcoin movements are are anchored to it one way or the other you'll see that we're actually calculating the premium to the 200-week moving average in real time on our website and we've also added a pretty neat metric uh time above and what you'll see on our website is that bitcoin right now it's trading at a very slight premium to the 200 week moving average and for about 91 of the history of the network it is traded at a higher premium than that and so i'd encourage anyone to go check out this website uh it's pretty useful we've got other metrics like bitcoin dominance and hash rate the fear and greed index you can also see the the net etf flows they were as high as minus five billion dollars or so about a month ago now they're coming in and so this is for people that really want to gauge the status of our capital base BTC. Now, let's go to the next slide. And what you see here is that we're in a phase of weakness. We're sitting now resting right around the 200-week moving average. If you're a capital investor, I'd say you have to take a four-year time horizon. So the right price signal to look at is the 200 week moving average and you see it's a pretty up into the right message and signal but you can see the periods of exuberance around late 2021 there was a massive premium then you could see in the crypto winter we fell to a slight discount and then you can see we traded back to a premium right now we're sitting right on that moving average now if we if we ask the question you know what are the headwinds holding back bitcoin um we really think there are five there's an ai capital expansion a trillion dollars or more of capital they're flowing into the data center build out the ai center build outs you know with the spacex the google the meta um the anthropic the open ai and then of course you're probably familiar with all of the Bitcoin miners, and they're building out their data centers for AI, and they're extremely capital intensive. That's created capital suction in the equity capital markets, and also an attraction in the private credit markets where massive amounts of credit capital has been flowing. So that's a headwind. We think at some point, we'll get through the biggest phase of that build out, and we'll settle into an equilibrium, and that headwind will become neutral, you know, attacking wind, or it'll subside. We also see trade tensions have been weighing on Bitcoin, all the foreign tariff wars and trade wars and uncertainty. The Gulf War disruption is a macro headwind, and it revs up and subsides, and things escalate. The Fed policy has tilted to becoming more restrictive over the past nine months. And we could see even as of yesterday, there were rumors that the Fed might raise rates and three of the Fed directors or governors actually voted to raise rates. So that restrictive monetary policy from the Federal Reserve has been a headwind. And then delays in regulatory clarity. The clarity bill has not moved as quickly as people have expected. And there's substantial uncertainty about when that will be resolved. So those are the headwinds that we face right now. We also think any one of them could become a tailwind or a catalyst. And we think generally Bitcoin has done pretty well in the face of those headwinds. And as we get good news in any of those areas, I think that'll be very positive for the entire bitcoin market um you can see uh that sentiment is near a cycle low and this is the fear greed index and we track this on our website now and you can click through and you can see it so um that sentiment reflects itself in a number of ways in our equity price and our credit prices and in the bitcoin price uh but uh there are many many positive factors in in the Bitcoin ecosystem right now in the industry I'd like to highlight one of them is the BTC dominance has been consistently growing since the 2021 low it's expanded about 20 percent and now if you look at Bitcoin's market cap as a percentage of all the market caps of the crypto tokens not including stable coins Bitcoin is a bit more than two-thirds and we think this is an incredibly bullish sign. So when I refer to the fact that Bitcoin has won the race to be the dominant digital capital network and the dominant digital monetary network in the world, I think this metric is one of the key signals that shows that it's won. There really is no serious discussion of a flippening no one thinks that solana or ethereum or any other crypto network is going to flip bitcoin bitcoin is the winner and that's incredibly clarifying insight because if bitcoin is the digital capital network for the next decade it's more likely than not that it's the capital network for the next 100 years. And we are building our credit structures and our equity structures on top of it. So this is the biggest uncertainty taken off the table over the past four years, underappreciated by many people. But perhaps it's more important than any other week by week, month by month, year by year development in the entire digital asset space. we keep track of banking adoption and in this space and i've noted that the real drivers of bitcoin price are going to be the formation of credit networks either digital credit or banking credit and of course the banks have have the ability to create incredible amounts of credit so if the banks create credit on top of real estate real estate values increase and as banks create credit on top of digital capital on top of bitcoin then the value of bitcoin will increase by our own uh bitcoin bank bitcoin banking adoption index which we just rolled out and it looks at the top 25 leading global banks you can see that uh that we've advanced uh from nine percent to 14 to 24 to 32 and so we think this is just incredibly bullish we will keep track of this adoption index each quarter and on our quarterly calls we'll report back to you as to how things are developing another great development this quarter is the formation of the Bitcoin Security Consortium. We worked in conjunction with all of the major Bitcoin investing and custody and trading institutions in the United States in order to form this consortium. And this is in response to a lot of investor requests, a very broad-based sentiment across institutional investors that they have clarity about how the Bitcoin network will address future security concerns. The most well-known one that's been talked about the most over the past six months has been quantum computer risk. And lots of investors wonder how would the network react to a quantum threat should it materialize. And we have joined forces with all of these other institutions to make sure we stay coordinated on that. There are a lot of people doing really good work in the space. The point of the consortium is to support any work that is pro-Bitcoin security related. We all want Bitcoin to be a secure network for the next 100 years. And so I personally have had a lot of enthusiasm for supporting security related work with regard to Bitcoin. I supported security efforts starting about 2020 with my own personal funds. And so So this is really the natural evolution of institutional investment and the security of Bitcoin. The intent of the consortium is not really to drive the protocol or protocol changes, but really just to fund investments committed to security and stability of the protocol. And each of the various institutions involved is going to make their own decisions. However, institutional investors would like a common voice and they would like a coordinated response. And so it will be helpful for the entire institutional community and for banking adoption, investor adoption, and to get positive regulatory adoption and nation state adoption of Bitcoin for us to be able to coordinate and to communicate the work that's going on and then make sure that we're ready for any security threat that may develop in the future. So a few words on digital credit. Stretch, STRC, is our flagship digital credit product, and we're laser-focused on Stretch. Our goal with Stretch is we want to increase the liquidity, we want to decrease the volatility, and we want to build an ecosystem of market participants we want people that are willing to trade it we want people that are willing to short it we want people that are willing to go long and hold it forever um i i'm not terribly bothered by the fact that someone might buy it at 88 and sell it at 95 we would love for that to happen we'd love for another group of people that buy it at 95 and hold it till it goes to 98 and other investors that will buy it whenever it falls below 99 and write it back to 100 and if no and if they don't want to hold it at 100 that's okay they'll be creating liquidity for other buyers at 100 and that stabilizes strc so um we welcome derivatives traders long traders short traders anyone that has any particular view it's fine uh you know if someone wanted to sell a billion dollars of strc short they would be paying the 12 percent dividend and so they would be paying 120 million dollars a year in order to create a billion dollars of liquidity to the benefit of our digital credit so again we we don't really worry about it uh we would like uh to return to par with the broadest most diverse ecosystem of market participants um that we can possibly develop and so that means sometimes instead of doing things immediately like we could uh you know return strc to par very quickly using our own capital but that would exclude many of these other ecosystem participants and we and and we would be getting ahead of our equity investors our credit investors bitcoin investors and the like so we will move progressively and deliberately with the thought that we want the deepest richest derivatives market, the deepest richest credit markets, the deepest richest equity markets, the most clarity, the most liquidity, and the broadest reach with regard to STRC we can possibly create, and that will be best for everybody involved. You can see our progress toward this here um strc has grown from 2.8 billion in notional value to three uh at the end of q4 and then to 5.3 billion at the end of q1 and then to 10.5 billion at the end of q2 it's um it's growing quite rapidly and uh and we're sort of in a hyper growth phase If we go to the next slide, you can see why it's growing. Simply put, it's the highest effective, you know, the highest tax equivalent yield and the highest effective yield of any major class of credit in the world. And right now, we see STRC as competing against private credit and bank preferreds, and junk bonds, for the most part, you know, those three categories. But we think over time it will begin to compete against investment-grade credit, mortgage-backed credit as well. The effective yield is 13.6% right now, but the tax equivalent yield is 21.6%. We think that digital credit is going to be the best credit, is the strongest credit, because it's based upon the strongest capital asset, BTC, and because it's based upon the strongest business model. The digital treasury company business model, based on digital capital, has lots of advantages in creating the highest tax equivalent yield. And so simply put, we think we've created one of the world's great business models for creating one of the world's great products, the product being digital credit. now of course i would think that but the real question is what does everybody else think in the world well i think the most sophisticated preferred stock investors in the world could reasonably be considered to be those running the blackrock pff fund the vertus infracap pffa fund and the VanEck PFXF funds. Those are the three largest preferred credit indexes that are publicly traded, and they're custodians of billions of dollars of capital. One thing that you'll note here in the past 12 weeks is that STRC is now the number one holding at all three, right? So it's not a fluke. We used to be the number three holding. We crawled up uh you know passed everybody in the market to be number two or number three in a hurry but in the past uh few months we've emerged as the number one holding and it's not a fluke it's it's universal across all three indexes so we think this is incredibly bullish uh because you know you you can develop all sorts of theories about what retail investors like and don't like But I don't think anybody disputes that a professional money manager who's in the business of managing preferred equities and has been doing it for a long, long time is pretty good at it. And they've got a lot of skin in the game and they're responsible to the most sophisticated institutional investors that are their investors. And you can see here on this table that we're the security of choice for all three and the number one security. And so and that we've got a lot of momentum here. Right. When other people were selling, they're actually buying STRC. And I think that's very positive. Who's digital credit for? It's for every investor class. Right. We're going to continue to refine it. And and we're going to offer it to retail investors, to institutional credit investors. to corporate treasuries, to hybrid hedge funds and equity investors, and to digital money and crypto native investors. And we think that all five of these groups are just incredible growth opportunities for us. If we look at a snapshot over the past three months or so, you can see that 78% of STRC was held by retail and 22% by institutional March 17th. But as of the first of july uh the institutional holdings had grown from 1.1 billion to 3.1 billion so tripled and they're now 29 of strc outstanding um on the other hand retail uh retail investments had not quite doubled they were still very strong but now they're 71 so we think that the that the trend toward more institutional adoption is great for the stability of strc you can see on the right side of the slide that the the average retail account grew from 44 to 48 000 over that period and the average institutional holding went from 1.7 million to 3.5 million over that period these are very very bullish metrics and they they uh speak to the seasoning and the maturation of the asset when we came public with strc it took us about 70 uh trading days to reach par and uh some people forget this but uh but when we did the ipo we ipo'd at 90 it took us 70 days to get to par And if we trace the period since STRC fell below our trading range of 99 to 100 and where we are today, it's been 40 trading days. So if we were to trace forward 70 trading days from when STRC fell out of our trading range, that would put us around September 8th. So we're keeping track of that date and we're keeping track of our progress we will focus upon returning strc to health and we think that if we did it in 70 days after the ipo then it's reasonable to target 70 days after it fell off of our trading range from may 28th we have the means to return strc to par right now you can see the market cap is 9.2 billion and the notional is 10.5 so there's about a 1.2 billion dollar dislocation we have allocated a billion dollars to buy back strc about two percent of our btc reserve we still have 975 million dollars of of that program available to us and so the first place we look is to use that buyback program to to cure the dislocation but i would remind everybody that the company has total reserves of 58.5 billion i've shown the the bar on the right and what you can see is that if the 975 million dollars doesn't cure the problem. We have ample additional capital in order to cure the dislocation. We're currently in a discovery process to figure out how much capital it will be required on our part in order to return STRC to PAR. We're certain that we will return STRC to PAR. That is the goal, right? So there's no question about whether or not success is returning it to par. It is returning it to par. The big question mark is how extensive will the buyback be and how rapid will the buyback take place? And then what will be the exact open market execution strategy of the buyback. We are calibrating day by day and sometimes multiple times a day as we learn from the market. And of course, we have a lot of market signal every minute of the day, every day of the week. We also are getting signal back each week as we put out a new announcement about our status. this, we think this is one of those things where we want to do it not too slow, but not too fast. And we want to allow other investors, our credit investors, our equity investors, and the Bitcoin community to participate with us. But especially we want our other credit investors to join us on this journey. We can go to the next slide. We updated our credit tab on our website, and I would encourage anyone to go check out that tab. One thing you'll see is the BTC ratings of all our credit instruments, and you can see that the senior bond has got 122x over collateralization. you can see that strf is now 12.9 btc rated so the btc ratings of the instruments are improving as we build the u.s dollar reserve we think this is obviously good for credit investors you can calculate the btc fair credit spread based upon your assumptions about forward volatility and forward Bitcoin ARR. And we've added a new metric, the BTC floor rate. And the floor rate is the rate that Bitcoin would have to fall on an annualized basis in order for these credit instruments to be collateralized one for one at the end of their duration. And so how do you get to a BTC rating of one for STRF, Bitcoin would have to fall 21% a year, more than 21.6% a year forever, in order for STRF to be under collateralized at the end of its duration. So this gives you a sense of how fragile or robust any given credit instrument is. And you can see, for example with the senior bonds bitcoin has to almost you know go to zero in a hurry in order for those bonds to be under collateralized but you can see even with strd uh the floor rate is 10.8 and uh the floor rate across all of these things all of our credit instruments is 11.8 and and we're starting to publish that on our website we think that that's pretty useful for our credit investor. We can go to the next. I've got our credit model here, and it's a little bit more detailed. And I guess I'll just make a few points. If you're a skeptic, and if you think that Bitcoin is going up 0% a year forever, it's basically not going to perform, then the BTC credit spread that the model would spit out is for strf is 86 basis points so strf would still be investment grade even if your view of bitcoin was it's not going to perform forever um the other instruments strc e and k they start to look some somewhere in the um in the intermediate level as high yield and strd kind of falls into distressed debt levels but having said all that there all of those publicly traded uh credit instruments have a spread premium over the uh yeah over that uh theoretical btc credit spread right because the market is pricing them much weaker than that so even if you're a skeptic they've all got you know very very large 474 basis point to 670 basis point spread premiums now what does it take for all those credit instruments to be investment grade let's go to the next slide right the uh the btc investment grade rate is a little bit more than 12 so you can see at 12.5 all of the credit instruments publicly trading strf c e k and d they all have credit spreads theoretical credit spreads less than 150 basis points and so you know if you think the bitcoin is going to perform like the s p index or i mean gold's been about 12 for the past six years the s p has been a bit more than that but if you if you have an optimistic view toward bitcoin is it's it's a legitimate capital asset you can see that the credit spreads all look investment grade. The spread premiums are anywhere from 550 basis points to 1,048 basis points. If you're a long duration credit investor and you don't need your money back for four years or more, and you just want to make a long duration credit bet, and you believe in the company, then you buy STRD and you get paid 1048 basis points of a spread premium and effective yield in the 16% range. The company's not gonna suspend its dividends because we're going to protect the digital credit business. If we were to suspend the dividend, then that would destroy the credibility of the company and digital credit. would be devastating for the asset class so if you believe the company's business plan and and if you believe in digital credit you can see that strd is a high effective yield and a massive spread premium if you semi-trust the company and and you just want a lot of investor protections but you're a long-term credit investor and you don't need your money for four years strf is as showing a btc rating north of 12 right now so what you can see is it's senior the senior billion dollars in the credit stack out of 15 billion it's got um it's got penalties uh dividend penalties it's got dividend stoppers right and on the other hand you're collecting an effective yield of 10 and a half percent and you're getting a extraordinary spread premium and the company doesn't have any discretion to lower that dividend. So if you're a professional credit investor and you don't need your money in four years or longer, then if you trust the company, you buy STRD. If you semi-trust the company, you buy STRF. But on the other hand, if you're a short duration credit investor and you're going to want the money back in the next year or three months or six months, well, then just don't want the volatility you don't want to wait and that's what strc was built for it was built for the shorter duration credit investor i guess we would say at this point if you think you need the money back you know in less than three months you're probably a money market investor if you need the money back in 90 days you're probably a money market investor you're going to put your money in a money market but if you could wait three if you wait four months to four years anywhere in that duration then you're a a short duration credit investor like a stretch investor and if you don't need the money for more than four years you're a credit investor you know you might want to look at some of the other preferreds and of course if you don't need the money for more than four years and you're a capital investor you should buy bitcoin and if you don't need the money in in less than four years and you're an equity capital markets investor and you want amplified Bitcoin, you buy MSTR. But I think these models illustrate this pretty effectively. And that takes me to my next point. We think digital credit is the best kind of credit. We think that we're uniquely positioned to create digital credit. And the best form of digital credit, the one that's in the greatest demand, is going to be Stretch, STRC. It's going to have the greatest liquidity it's going to have the largest AUM uh it's the shortest duration and uh and all of our discussions with credit investors plus our view of the market we've seen that what the market wants is they want the shortest duration lowest volatility highest liquidity most stable highest AUM you know most broadly distributed credit and uh and strc is already the most liquid and largest preferred stock in the world. So we expect to keep laser focus on it. We're going to do everything we can to make it the most appealing credit in the entire digital credit space. And we think that if we do that, it'll be incredibly compelling credit for people that might otherwise invest in private credit or junk credit or corporate credit. A few words about our equity. We now publish the hurdle rate, the break-even rate, and the floor rate on our website. The hurdle rate represents our blended current cost of credit. And so if Bitcoin outperforms the hurdle rate, then in our view, our BTC gain, when we sell $10 billion of credit and we we book a btc gain of of x billions of dollars let's say it is 10 billion then if bitcoin outperforms the hurdle rate we're never paying back the credit which means that the 10 billion dollars is 10 billion dollars of net income so the cut the company becomes incredibly profitable on on a bitcoin a btc gain basis when bitcoin is outperforming the hurdle rate And you could think of this as four simple zones. If you think Bitcoin is going to outperform the hurdle rate and you're an equity investor, then our equity will capture the positive spread over the credit. We're borrowing money at the hurdle rate. You know, we're investing it at something that might be 15 or 20 percent, some premium to it. And so it's an incredibly good business. We capture the spread and then we can cover the cost of the credit with the capital appreciation. And so the equity will thrive. But of course, the credit will also thrive because we're making a wise investment. So in that zone, equity and credit both thrive. So if you expect Bitcoin to appreciate between the breakeven and the hurdle rate, the equity might underperform. It may not. We have a lot of tools at our disposal. We may actually benefit from the float and the volatility, and we can do a lot of things that may be good for the equity, but it's a bit harder for us. We have to work at that. So there's uncertainty around the equity. um the dividends are still covered because we're we're substantially north of the break even as long as bitcoin's at the break even rate we can pay the dividends indefinitely and we can do it without even selling a share of equity or or without any other capital or recapitalization so so you're in a pretty safe zone a very healthy zone for the for the credit and for the equity we're in an operating zone. We have to think hard about how. We can still perform, but it's harder than when we're substantially above the hurdle rate. Now, if Bitcoin underperforms the break-even rate, that's challenging for the equity. The equity will probably underperform. And for the credit, we have to do things over the long term. Like, you know, we've got at 0%, we've got like 33 years. That's the duration of the company. So it's not like we don't have time, but sometime in 33 years, we're going to have to do something if Bitcoin performs 0% a year. So we start thinking about what we might do if Bitcoin falls below the break-even rate. Below the floor rate, that's when we start to think that's a challenge for the equity. The equity is definitely going underperformed, but the credit's going to be impaired. And so that means we have to think about restructuring, you know, the credit. We refinance debt. We roll it forward. We would have to become creative. But you can see here just how bad things have to get before you get in that zone. So the beauty of a Bitcoin treasury company is there's transparency every 15 seconds to this and you can create all of your own models statistical models to figure out what you think's likely you can plug in your own assumptions and then you can figure out whether or not your long equity short the equity long the credit short the credit if you want to hedge these things there are so many different ways to be long short straddle or take risk off the table and uh and we welcome it and we encourage it you know that's one of the reasons why our derivatives markets are so healthy and why the equity has so much liquidity. But what I would say to anybody is check out the website, look at these rates and come to your own opinion about what you think Bitcoin's going to do. Now, the history is Bitcoin's been appreciating 33% a year for the past six years. And if you go to our website, you'll find we've got the 10-year rate as well. So you're not without resources here. Where are we right now? The markets right now are pricing fear. It's a very muted market, very skeptical market. Bitcoin's trading at a very slight premium to its 200-week moving average. As you can see, our credit is paying an 870 basis point premium above the BTC credit spread you would predict. If you plugged in Bitcoin appreciating 12.5% a year and staying as volatile as it is right now, then the credit would be fairly valued at 870 basis points less than it currently pays. And so you can see the credit markets are fairly skeptical. The capital markets are fairly skeptical. They've traded with a premium north of where we are 90 of the history of bitcoin and the equity markets are fairly skeptical mstr is trading at a 5.5 premium to our net uh net assets and you can see this illustrated a bit more on the next slide right if the the mstr price implies a near zero value for the digital credit business in essence uh if you look at the market cap of the company compared to our net reserves if we were to pay off all of our liabilities at face value, we still have $36.3 billion of net reserves. And the market cap is $2 billion in excess of that. So the real issue is what is the operating business worth? And so our view is if we can sell $5 billion of digital credit a year, and if Bitcoin outperforms a hurdle rate, then that looks like $5 billion of net income to us and the business ought to be valued at some multiple of that depending upon robustness and growth. If we can sell $10 billion of digital credit a year, then you could imagine the business being at some point, we show the market, we can do it. We show the market, we can grow from there. You could put a 10 P to E on that. And so what you can see is our view is the digital credit business is dramatically undervalued. It should be worth something substantially more than $2 billion. The market is pretty much skeptical that there is a operating business there. As the market begins to realize that we have a digital credit franchise, then I think that they'll put a bigger P to E on that. And as we show that we can stabilize STRC and we can grow it in a stable, steady fashion, then I think that we'll see those multiples expand and the value of the digital credit business will expand as well. And I think that's very bullish for the for the equity. MSTR is built to outperform Bitcoin over the long term. And one way to see that is looking at these statistics. If you're a short duration investor, if you're just trading on a daily basis or weekly or monthly basis or even quarterly basis, it's pretty much a coin flip whether MSTR will outperform BTC. But as your duration stretches to one year, you get a substantial advantage. When you go to two years, it's 64% likely. When you get to three years, it's 87% likely. And in 495 windows of four years or longer, MSTR has outperformed Bitcoin 100% of the time. So if you're a four-year investor, you've got a long time horizon. And you can see that as the time horizon extends, the laws of statistics start to work on our favor, and we begin to outperform. And you can see it reflected here in the last six years from August 10th of 2020 to today. Bitcoin's up 32%. MSTR is up 42%. The MAG-7 is up 23%. The S&P is up 14%. Gold's up 12%. Real estate's up 8%. money. Money markets give you three and bonds are a minus 4% loser. So our strategy is fairly straightforward. The stats seem to be telling a very clear story. We believe that we can continue to outperform Bitcoin and the engine for doing it is the digital credit engine. Why do we believe in the franchise? Well, let's look at these four factors, right? We're sitting on an incredible capital stack. We have $55 billion of Bitcoin, $3.75 billion of US dollars, and we're a well-known seasoned issuer. That gives us a big capital advantage. We also have a technology advantage. We've been in the business for a long time, 35 years, but also we invented a lot of these credit instruments. We've been trading them in the markets. We've learned a lot about how they trade. And we think that understanding how digital credit works and how digital equity works is a big tech advantage. A third pillar of our franchise is the brand. We have millions and millions of followers. They know who we are. We're well known everywhere in the world in every major capital market this is a big advantage and then finally there's a network effect uh millions and millions of investors tens of thousands of institutions deep pools of liquidity um where uh we've got the the highest ratio of uh of open interest to market cap in the s p universe We've got a very deep, I think, one of the most liquid stocks in that S&P 500 universe. So deep equity liquidity, deep derivatives liquidity. We've got the most liquid preferred stock. So deep credit liquidity. Lots of people trading these things. Lots of people making a market in them. You know, all of the hedge funds. and we pride ourself on creating lots and lots of trading pairs so there are a lot of ways that people can be long short hedged straddled you know in equity or credit or derivatives and that's a very very large financial advantage and a large brand advantage for mstr and we think that we will be able to grow that so simply put what is the goal of the company what's our ambition We want to be the world's largest company. That's our ambition. Well, largest in what terms? Not the most employees, not the most products. We want to be the largest in terms of market cap, the most valuable company in the world. And what's our plan to do it? It's very simple. Own the most capital. BTC is capital. We're going to own the most. Our strategy is own the most capital. Who else would say they want to own capital? Berkshire Hathaway in the 20th century, I don't think they're as ambitious right now as they used to be, you know, since most of their capital is sitting in T-bills or, you know, sovereign credit. But in essence, Berkshire Hathaway had a strategy to hold a bunch of capital. We have a strategy to hold a bunch of capital. Most other successful companies don't have that strategy. The second prong, after we own the most capital, we're going to issue the strongest credit. If we have the world's best capital, the best performing capital asset, BTC, we should be able to create the strongest credit, STRC. And we think for every dollar of capital, we can sell 10 to 20 cents of credit per year. And so the more capital, the more credit, the more credit, the more liquidity, the more stability, the stronger the brand, the lower the volatility, etc. cetera. And then by issuing the strongest credit, we think we'll create the best equity MSTR. And that just becomes a virtuous cycle. Acquire capital, issue credit, create equity, rinse and repeat. And we have done that. We've gone from a $600 million enterprise value six years ago to 60 billion so by a factor of a hundred and uh and we think we're just getting started now we're getting the engine tuned and uh and the the credit turbine is beginning to spin up again i will uh i will end by thanking everybody for your support reiterate our principles that haven't changed and with that we'll be happy to answer questions from the panel thank you Michael we now start the live Q&A session I'd like to welcome all our Q&A guests and invite them to
turn on their video we look forward to your questions we'll go one at a time I'll call out your names and you can direct your questions to the management team for the first question we have mark palmer please go ahead yes thank you and good evening um uh earlier in the call uh fong noted that management has learned a great deal about the investors in stretch uh and how they think um and and one thing that we've seen is that uh the size of strategies usd reserve uh is important to retail investors in particular, and more important than the amount of obligations ahead of stretch in the company's capital structure, such as the convertible bonds. With that said, would you consider borrowing against Strategies' Bitcoin holdings, specifically with a bank, with a fortress balance sheet as your counterparty and use the borrowed funds to increase the USD reserve to a size that would put to rest any concerns about dividend coverage and presumably drive the price of stretch back up to par at which point the company could resume buying Bitcoin. bong uh do you want to take that question initially yeah i can start um i think the
feedback is that something between two to three years from our institutional investors is that level uh that we need to get the bitcoin reserve to we're at 2.1 years which to continue to grow we're doing it primarily through issuing equity at a premium to net asset value we have considered and talked to many counterparties about borrowing against our Bitcoin. And I would say that the market is not as big and not priced as well as you would think it would be at the size we want. So it's not something we've considered doing. The other thing we have to consider is the counterparty risk, the terms, et cetera. So it's not something we've really looked too hard into.
I think we have better ways to build up the U.S. dollar reserve. you know so i think the short of this it's not on the table right now the company has the option right in the future if we ever needed to uh to to use bitcoin but uh we think that right now it's it would be more complicated uh than it's worth and and we have more straightforward ways to build the USD reserve up that will create fewer questions or counterparty risks or uncertainties. And so our goal, I think, is we would like to eschew debt. We would like the existing amount of debt to be the maximum we have. We would like it to be progressively whittled down in a responsible way over time. And we would like to avoid any kind of appearance of a margin debt or mark-to-market loan on the balance sheet, just because it tends to be an attack surface, an attack narrative for short sellers. And we don't want to create anything that creates those uncertainties if we don't need to. And I don't think we're going to need to.
Thanks, Mark. Next, I'd like to invite Matt Hogan.
Great. Thanks for having me, Michael, Andrew, Fong. Thanks for a great call and good execution on a difficult quarter. I have a two-part question. So watching the business evolve, you've periodically added new tools to the toolkit, first equity issuance, then convertibles, then preferreds, then perpetual preferreds. The first part is, are we at the end of that series of innovations or are there more instruments coming down the road? And then the second is a variant of that through the btc monetization program you have effectively found a way to to sell volatility and sell the volatility of investor sentiment at the securities layer wondering if you've considered or there are reasons why you wouldn't also consider selling volatility at the derivatives layer as another tool in the toolkit to navigate always changing market environments i'll start with that and then you guys can chime in if you like um right now we have um six bonds and five other credit instruments so we have 11 credit instruments
we could issue six more tomorrow we could do one a week every week and we could blow out to 18 or 24, 36 or 48 credit instruments, we could go. But we're actually, it's not hard to issue a credit instrument when you have 55 or 60 billion of unencumbered capital. We're going the opposite direction. We're laser focused on consolidation. So, you know, I rather like the business model of like the Strives. If you look at Strive, they've got one equity, ASST. They've got one credit instrument sata and that's it and it's just a question of how big will the market cap of the equity get and how big will the market aum or the market cap of the credit get and you know i i think you would you probably should expect that we won't have more we'll probably have less so i think our 11 credit instruments will be whittled down you know you know our explicit plan is to whittle them down over time uh i'm i'm certain that we'll keep strc strc is the flagship all the focus is strc we think that the other prefs that publicly traded are option value if they were fairly valued right now they're not fairly valued they're they're way under values like my message is you like, you know, if you get this, you ought to go buy STRF or you ought to buy STRD. They're incredibly compelling institutional opportunities for a long-term credit investor. They're so good that I won't sell it to you, right? Like that's how good they are. The bonds, we don't see as strategic. We think that we had to do the five. If I could do it again, Matt, I would just do, I would do no bonds. I would just sell STRC. I would go directly to, you know, to go, you know, don't stop anywhere else. Just go to the winner. If I could do it again. And I, and I tell people generally, like if you're sitting on $5 billion of capital and you're a Bitcoin treasury company, Don't sell convertible bonds. Don't sell long duration credit. Don't sell a product like strike or stride or strife or stream. Just create something which is short duration credit like STRC or SATA because we know there's 50X to 100X the demand. So if there is 100X the demand, we don't really need to create any new credit instrument to grow. And in fact, that you know it's like like I say just because you can do a thing you shouldn't doesn't mean you should do a thing I actually think this is one of those examples where don't just do something stand there right like the more the more you do the worse it is because every new credit instrument robs liquidity from the one that that really matters so we're interested in uh in combining liquidity or building liquidity so it's more likely that we would offer you a swap to swap into strc and pull liquidity than we would ever bifurcate it and it is true i can imagine a hundred cool things to do like i can imagine digital money in yen or Swiss francs or pounds or euros. I can imagine a 10 vol credit instrument in euros, pounds or francs. I can imagine a zero vol money instrument in those things. We're just not going to do it. That's what I would say for everybody else, every one of our partners. They're great ideas. You should do it. But for us, they would be a distraction and they would dilute our focus and they would they would dilute liquidity it's like i rather than if even if i could issue for example stretch in euros i would rather issue stretch in dollars and have someone else create stretch and euros and buy the currency hedge and and get paid 200 basis points and may and they make a lot of money off that business then for us to do it so we feel like we've we've got kerosene we're not going to design the jet airplanes the trains the planes we're gonna everybody else can uh can build every refined version of it that they want so uh i i don't think it's constructive for us to be over inventing product right now you know it's it's it's kind of demonstrative when you think of apple you know they're still making all the money off the iphone and it's like i'm not against magical revolutionary product, but let me put it as a hurdle as this. If you came up with an idea where the demand was $100 billion or the market opportunities between $100 billion and a trillion dollars, you might get my attention and we would talk about it. But if you gave me a $10 billion idea, I would say that's a distraction. And the only ideas I can think of that are 100 billion dollar ideas are things built on top of strc by someone else and i hope someone else does build a hundred billion dollar thing on top of strc good for them i hope they make billions and billions a year off of it and everybody lives happily ever after but i i'm i'm reasonably sure that we're more likely to commit a foul by innovate by creating other things things rather than by focusing on the one thing and making the one thing. Because the one thing is short duration, low volatility, high liquidity, stable credit. And that's a trillion dollar opportunity for us. And if that's all we do, if that's all I do in the rest of my life, then that will have been greater than I could have ever hoped for. So that's what I think of with regard to that now the second part of your question oh selling volatility you know we could go and we could we could sell volatility we could sell tranche you know we could sell out of the money um we could sell out of the money call options on bitcoin we could sell volatility against the commodity or the capital asset btc we could also sell volatility against the equity we could actually sell uh warrants on mstr and it's not lost upon us right that we could sell a war on an mst by the way when we sell convertible bonds we were selling a bond with a warrant so i could go and sell a 200 strike on mstr or i could tie it into a convertible bond but as you could as you know we don't want to sell bonds because bonds are senior to our to stretch. So that's a non-starter. Now, if I were to sell the warrant, I'm selling volatility, but I'm stripping volatility. I'm clipping it off of the common stock. And so the point really is we are selling volatility right now, Matt. And the way we're selling volatility right now is we're selling MSTR. And so when we sell MSTR, MSTR has a 90 vol or 80 vol. And the reason people want to buy it from us is because it's gut vol. So if I turned around and I sold billion dollars of volatility on top of MSTR, I changed the convexity of the instrument and I strip the volatility from the equity and I transfer it to the other security. So this is kind of like I can sell five credit instruments senior to STRC, but they undermine my best idea, STRC. And I could sell five warrants. I could sell a warrant at 150, 200, 250, 300, 354, but I'm stripping the vol and the value off of the underlying security. And what I'm doing is fragmenting all the liquidity and i'm creating complexity and this is something that you know a professional options trader at susquehanna or millennium or citadel or soros they could do all day long and my view is they're better than us and and so there's two there's two criteria there's two thoughts one is i don't want to steal an opportunity from a credit investor or an equity investor or derivative investor i don't want to steal it from them i want to leave it for them i want them to say oh these goofball guys they could sell the volatility but they don't so i can like yeah it's like you can that's why people that we never met that i've never had a meeting with the derivatives traders that create the options market and our stock and yet they just spend this stuff up for us right that's the reason they do it because that's what they do so i don't want to steal their opportunity and i don't want to make their job harder i want them to have complete transparency in line of sight for five years right for as long as possible so they can create all these things but the second thing is there's a general principle that we're a publicly traded company we should do things that we are uniquely able to do that they can't do So a guy with $100 million and a Bloomberg cannot create STRC, and they can't do what we're doing. They can't issue it, right? And they can't improve it. And they also can't create MSTR. So we're creating securities. We can create publicly traded liquid securities globally, and they can't do that. But what they can do is they can enter on all those trades. So all of those other trades, whether it's like strip the ball, convert the currency, change the duration, you know, butterfly between one year and three year, amplify it up, damp it down, structure it. They can do it. They should do it. I welcome them to come do it. And our representation to them, our promises, we won't compete with you and we won't change the convexity. Like, how would you feel if I put out a press release saying, I just sold BTC call options at $75,000 a coin against $50 billion of Bitcoin? How do you think about the equity then? You're like, well, he just stole the upside on the equity, you see? And so the equity investor, and then how do you feel about the derivative, the call option guy? It's like, wait a minute I just created that market and they just distorted the market and derivatives and they're they're mucking with it and now you've got all this issue of derivatives guidance and so we're not trying to make the company more complicated we're trying to make the company simpler and and it's such a good idea my view is yeah it is a good idea so I leave it for someone else to do and it's not that we're not selling the vol we're selling the vol right we sold billions and billions of dollars of equity and it's like to a certain extent the people that bought it from us were buying it for the volatility and for the for the upside and when we start selling the vol we're stripping their upside away from them and and ultimately there'll be a price to pay so i think it's one of those things where it's easy to do. I could raise a billion dollars in two days by selling the warrant. I could raise a billion dollars in two days by selling the convertible bond. I could raise a billion dollars in two days selling a junk bond. And it'd be, it's easy come, but there would be a bad hangover. And the hangover would be, it would change the characteristics of the other securities and it would fragment liquidity and also it would undermine trust right and the trust and the trust is like i'm not going to do that and so you can take advantage of that knowledge to put in whatever trade and you know trade against me or trade with me and it's more important for us that we make the biggest possible market in the equity mstr and in the credit strc right then that we pursue every cool idea one more point i'll make um we could generate billions of like we could generate billions and billions of dollars of revenue by selling volatility against btc right now we would also generate a multi-billion dollar tax liability and then the equity investors absorb the tax hit and then we pass it through to the credit investors. So MSTR equity investors currently have a business model where they've got a deferred tax on capital gains and the credit investors have a deferred tax on the credit dividend. And so we have a very tax efficient business model. And if we start to get cute by doing all this. We create lots of complications. You're like, well, maybe they don't care about deferring tax on the credit. Well, actually, it's not just that. It also eliminates the withholding tax for foreign investors. So you might get a 30% withholding tax. So this has so many complications to the tax efficiency of the credit or to the tax efficiency of the company and introduces counterparty risk. And all of those are micro reason to do it. But to tell you the truth, the real reason that we don't do it is because I want some dude with a Bloomberg to get up in the morning and lay a $500 million bet taking advantage of what he knows about volatility or she knows. And I want them to know that they can put that trade in and we're not going to rug pull them by counter trading or trading against them because the most important thing, the thing that's made us successful is a very good partnership with the Citadels and the Millenniums and the Susquehannas, right? And the Soros of the world and the capital investors of the world and capital groups and then all those credit investors and all of them, they've got their own models. And the last thing in the world they need is to have to guess how we will decide to trade in the next 12 weeks. It just breaks their models. And what will happen is they'll take their money and they'll go home or they'll, you know, they'll cut their allocation of capital. And so instead of investing with us, they're like, well, I can't, the company's too opaque. It's a black box. I, you know, it's like, you know, that's just not the right way to build a network. And we don't, we could do it. I could generate a billion dollars like this But we're not playing for a billion dollars, Matt. We're playing for a trillion dollars. We want to create a trillion dollar company and a trillion dollar asset class. And that requires that we think very long term strategically. And we can't do it alone. We need people with more money than us to trust us.
That's super clarifying. Thanks, Michael.
Thank you, Matt. Next, we have Ramsey LSL from Cantor. Ramsey, go ahead, please.
Thanks for taking my question this evening. I think it was Andrew that mentioned the prepared remarks, plans to either equitize, repay, or refinance the existing convertible debt. Can you all collectively help us think through the scenarios where you would opt to or be compelled to deploy these different approaches and also comment on the general timing of your actions when it comes to addressing the upcoming convertible debt maturities.
I can start. I would say, Ramsey, the simple answer is that we have all of those options available to us, right? And so in terms of, you know, monitoring the market, being able to understand, you know, what the right action is at the right time, I think all of the options are open. In terms of timing, I don't think there's any prescribed rush right now. You know, I think we're continuing to be very disciplined in how we think about it. I think the activity in Q2 showed that we're able to go out and repurchase the debt. And there is an active convert market that's very active right now. But really, it's just about waiting and seeing when the right time is. Right now, our priority is to get stretched back to par, as we've said. And so I think the broader message is simply that liability management options remain open. There is no set timeline. We will be disciplined in how we think about it. And we'll move forward in that manner.
I can give you an example, Ramsey. Our next convertible debt put date is September of next year. It's our 2028 converts with a conversion price of $183. dollars my expectation is that in september of next year we'll be north of that conversion price we won't get put and then a year later we'll equitize it uh because we'll be north of 183 let's say a year from now we're not north of 183 dollars we get put then our options are either to sell mstr at a premium to pay it down our options are to sell bitcoin to pay it down or we could just refinance it right the terms of convertible notes right now we get asked every single week by a bank are we willing to do a zero up 40 four billion dollar eight year convert the terms are actually better now than they were when we entered into most cities converse in the last five years so there's a lot of options and that's the next one that comes up and that's how we think about it thanks thank you Ramsey next we have Samson Moe okay hi thanks guys for having me on it's great to be here with this lovely big Bitcoin group of heavyweight intellectuals.
So I have a compound question. I hope you don't mind. It's a bit of a follow on to Matt's question. So I understand you want to keep things simple. You don't want to be trading against the guy with the Bloomberg terminal and 500 million. But do you think there is any benefit in this sort of new shift to an active capital management strategy to do things like sell covered calls? Because there is now a price point at which Fong you said is advantageous to sell Bitcoin. So you could deploy some capital in those markets just to optimize your acquisition or possibly create like a side pocket for selling cash secured puts to buy Bitcoin cheaper at times too. Do you view that as conflicting with the current strategy of keeping it simple or is there room for optimization in there for the Bitcoin accumulation, because, you know, that's a very, it's a hard market, especially when Bitcoin is rolling.
I'll give you a quick answer on that, Samson, which is just right now, that's not part of the plan. We just think it would generate counterparty risk, complications, change the convexity of the equity, change the tax characteristics of the company, change the tax characteristics, or it might create a tax complication for the credit. And our view is the single most lucrative thing we can do with a stack of Bitcoin is sell credit against it, not sell volatility against it. So anybody with a billion dollars of Bitcoin can sell $100 million or $500 million of coverage of covered calls not like anybody can do that a private citizen could do it there's only two companies in the world right now that have shown that they can actually sell digital credit against bitcoin us and strive and there's only one company in the world can that can sell credit at our scale and that's us and we i don't know why we couldn't sell we were selling two billion dollars a month of it we could sell a billion a month of it so um our our focus is get the digital credit reactor up and running and don't do anything to confuse the matter and don't do anything to create opacity and and again they're all options like in the future if i had to do it right if i had to do it for some reason i would do it but right now we think the best business in the world is selling strc and the most useful thing we can do that the path to become a trillion dollar company that the path to become the world's most valuable company is not selling call options on on bitcoin the path to becoming the world's most valuable company is creating the credit money on top of bitcoin and uh everything we do that uh is complication to the credit that that that makes it confusing it's like you know uh that that undermines the credit worthiness of strc and it distracts the management team so so it's not on the table right now and uh and we're just going to focus on returning stretch to health did you have a second part to your question yeah sort of So related to Stretch, so just a disclaimer, I'm a big believer, I think Stretch is a brilliant product.
We try to do the same structuring instruments for nation states like Stretch. But there is marketing around Stretch saying, you know, we make Bitcoin money. And in the Bitcoin space, there are people that are kind of wondering what is your view? Is Bitcoin an asset? Is it digital property? Is it digital Manhattan?
Or is it money? and do you feel these instruments like the preferred squeeze out people from discovering real bearer bitcoin and i think it'd be cathartic for people to hear what your view is on on that yeah it's a good point i i think the thing to keep in mind is our marketing is to the 99 percent of the people that don't own bitcoin that don't want to buy it right so when uh our mark when we say um when we talk about uh uh bitcoin and what we're going to do with it we're we're selling um we're selling products credit products to people that would never ever in a million years buy the bitcoin they just won't buy it either they won't buy it because it's illegal for them to buy it they don't buy it because it's against their mandate to buy it they don't buy it because don't want to hold it they don't buy it because they literally can't that they don't have the ability to punch the button and buy it so it's either technically impossible or it's just you know impossible so we're creating a product for them and when we create a product for them we need to market it in a package that they can buy um you know i think that the issue with money is the Austrian perspective on money and the JP Morgan perspective on money is a non-sovereign store value bearer instrument is money. So gold is money. Everything else is credit. A famous JP Morgan quote from more than 100 years ago in a congressional hearing. And I've said Bitcoin is money. Everything else is credit. If you're an Austrian economist and if you're a Bitcoiner, then you would understand that that resonates with you and you would be 1% of the money in the world or 1% of the opinion. The rest of the world doesn't agree with us, right? The 99% of the world, they think that money is a zero vol pegged to a fiat currency. It's a money market or it's actually a stack of dollars. They think of money as the most saleable good, as a medium exchange unit account store of value, but in the fiat frame of reference. And it's not hard to point toward that. There's $30 trillion in money markets and it's literally a regulated term. Like, for example, it's illegal to market your thing as a money market, right, because it's a regulated banking term. And so the rest of the world has defined money as an asset pegged to a fiat currency in yen, euros, dollars, francs, pounds. That's how the rest of the world is. Okay, so when you're creating marketing, there's no point in marketing to people that are 100% invested in Bitcoin that they should buy Bitcoin. Because they don't have any additional money to buy Bitcoin with number one. And number two, they don't need to hear that, right? Like no one that's 100% invested in Bitcoin needs to hear from me that they should buy Bitcoin. They would say I already did that so when we're marketing we're marketing to the people that wanted to buy equity or wanted to buy credit or wanted to be invested in something different so uh so to the conventional institutional investor we would position bitcoin as digital capital because it's capital asset and it competes with real estate and equity portfolios and credit portfolios other liquid instruments like that so they think of it as a capital asset and then they would recognize strc as a credit instrument and there'll be a little bit of you know some people think well it's preferred that's not credit well the truth is it is credit it's just not a bond and so they would view a preferred equity as a credit instrument and we would deliver that now in And in the fiat frame of reference, gold is capital. A gold-backed bond would be credit. And an instrument that was pegged to the U.S. dollar, a note, would be currency or would be money in a fiat frame of reference. And that's the world for the last 100 years, and that's just the way it operates. So when we think about how you grow the business, if you're going to grow Bitcoin from a trillion to $100 trillion, you can't just convince all the people that have invested everything in Bitcoin that they should keep investing in Bitcoin because you're going to get a trickle of cash flows. you're going to have to go find $99 trillion of other money or monetary value. And sort of by definition, it's somewhere else. It's invested in real estate. It's invested in bonds. It's invested in the equity capital markets. That's like a $1,000 trillion stack of capital. And we're $1 trillion. That makes us 10 basis points. We're 0.1%. So when you go get that money, You're either going to create a Bitcoin-backed credit instrument like STRC, or you're going to create a Bitcoin-backed equity instrument like MSTR, or you're going to create a wrapped Bitcoin-backed fund like IBIT, and all of those are channeling capital into the Bitcoin ecosystem that could not, they could not contractually, maybe they could not legally, they could not technically, they could not ethically, they would not economically buy the underlying crypto asset. They just wouldn't. And you can, the irony is always seeing people that are Bitcoin maximalists to get angry that we're actually, that BlackRock is selling wrapped Bitcoin to sovereign wealth funds, or that we're selling amplified Bitcoin to an equity investor, or we're selling digital credit, you know, credit, you know, credit instruments backed by Bitcoin to a credit investor. But I, you know, I guarantee you, there's like, there's no one that buys those instruments that sold Bitcoin to buy the instruments because they didn't want to. It's It's like all the demand is coming from people that they have. They say, I have a pool of money and I can't put it in the 40 vol crypto asset. And so their choice is put it in a money market or put it in a credit, a diversified credit fund. So. We see the expansion is digital credit will allow us to tap into the multi hundred trillion or credit mark. And then if you can take that credit and create an instrument pegged to a fiat currency, if you can peg it to the yen or the Swiss franc or the euro or the pound or the dollar, and you can offer a spread higher than the risk-free rate, the conventional rate, then you will start to divert capital from the money market instruments. And, you know, we talk about digital money. What is digital money? Digital money is a Swiss franc that pays you four percent in a world where the fiat money is a Swiss franc that pays you zero or negative. Right. And and, you know, we we can debate semantics and the crypto community, but it's kind of irrelevant because all the money is not in the crypto community. the money is in the fiat community so the if there's a trillion dollars invested in swiss francs that yield zero and you want a hundred billion dollars of it you have to offer them a swiss franc that yields four percent backed by a digital credit instrument backed by bitcoin point. So, you know, when we use the phrase digital money, we're creating a product to sell to the people that have the hundreds of trillions of dollars of fiat backed securities or money instruments or credit instruments, because that's what they understand. And we use the word digital credit. We're creating a product to sell to people that have credit that is fiat based, that they understand. And what is Bitcoin? Well, yeah, it is money. It's digital gold. As much as gold was metallic money, Bitcoin is crypto money or digital money. But it's also digital property. It's also digital capital. It's also digital energy. It's also trust, digital trust. If you want to establish or authenticate digitally, how do you prove your identity without a trusted third party? You know, it's one thing to transfer money without a trusted third party. It's another thing to prove that you're Satoshi without a trusted third party. The answer with both of those is using a public-private key combination. I mean, that's, you know, Noster, you know, approach this. And I think public private key cryptography is a critical thing. But even with public private key cryptography, the ability to anchor it into the most energetic, most secure global blockchain is important. So I think that Bitcoin is important to understand as a trust network a monetary network a capital network an information network right and and uh you know what is the highest best use i think i i think the market has clearly spoken that the highest best use is as for store of value or as a capital network we have we have proven without a shadow of doubt that bitcoin functions if you want to store your monetary energy for four years or longer and the way we've shown it is like well we're moving 50 million dollars a day you know you're selling a billion dollars a week of something right so so clearly that's a killer app but there are other applications right medium exchange applications and authentication applications and the like. They're not nearly as valuable right now. And it'll be whatever it'll be. But our view is we'd like Bitcoin to become 100 times bigger than it is. And that means we need 100 times more money. And it's other people that have the money. and right now they're invested in fiat denominated credit equity and monetary instruments and we need to create products that appeal to them and we need to market them and with words that they understand and the most important thing is get the money awesome i think people will be happy hearing us talking about bitcoin is money for 10 minutes thanks thank you samson Next, we have Nick Cremo from Barclays.
Thanks, CJ. And hi, team. Thanks for having me on this call and taking my questions. The first I just wanted to ask on SDRC, it's good to see the dividend coverage is over two years now, well ahead of the 12-month minimum in the USD reserve from your digital credit capital framework.
I just wanted to ask if you would consider raising the minimum number of months of coverage to say maybe 18 or 24 months. just as a mechanism to get strc closer to par if later this year it's kind of still trading in this high 80s range i think we'd consider it nick i think the best thing to get it to trade to par is uh our commitment to a u.s dollar reserve and increasing the actual number not necessarily increasing the minimum i think the other thing we can get do to get traded back to par is is a study and a repurchase program which you've seen and another thing is just bitcoin price going up i think those are some of the levers um would we increase the minimum us dollar reserve maybe at some point but i think a year is a good spot really how much we have in the us dollar reserve i think matters even more and our commitment only to use it for dividends and interest thank you nick Thanks, Nick.
Next, we have Lynn Olden.
My question is, do you have current guidance on kind of a target level of overall amplification or leverage for the company as part of the capital structure? And kind of a related question is the counter-cyclicality or pro-cyclicality of capital issuance. And so, for example, when STRC has a lot of demand, which tend to happen along with the other instruments during bull markets, there's a choice when it starts to go above R either to issue more STRC or to potentially ratchet down the dividend. So far, the choice has been made to issue more, accumulate more Bitcoin, historically at these kind of pro-cyclical prices when they happen, as most treasury companies do. So going forward, do you have kind of just overall guidance of what you think that kind of the ideal amplification structure is or like level is? And then do you plan on trying to find ways to now that you have a kind of multiple different levers to pull to be somewhat more counter cyclical in your approach or take a view on whether Bitcoin is maybe oversold or overbought and therefore leaning in or leaning out of? or is that not really how you view, you know, what you're offering to investors? Thank you.
I guess I can start and then Fong, you probably have some comments. You notice on our website, we added those Bitcoin metrics. And one of the metrics we added is the 200 week moving average. And then we added the premiums, the 200 week moving average, and we started tracking it and we started tracking the percentage of the time Bitcoin is above that number. And so I, you know, i think traditionally we have we've always wanted to be uh long bitcoin but i think we underestimated uh the value of us dollars and now i think we've developed an appreciation for actively managing the mixture between usd and btc and obviously we have more us dollars today than we've ever had in history of the company and uh you know we saw that when we went you know 98 or 99 btc 1 usd you know the bitcoin investors didn't like it the equity investors didn't like it the credit investors didn't like it so it actually was uh it actually was counterproductive to be too btc focus so i i think you could expect that you know we're going to be staring at at metrics like the premium to the 200 week moving average uh and i think that um although in the past we've had 100 allocation to btc i don't think it'll be 100 in the future i think it'll be a mix um and pro and to your point if you're sitting at a hundred percent premium to the 200 week moving average then then you know the likelihood that bitcoin is going to trade the opposite way goes up right uh and so i think that when we're sitting at premiums we probably will uh you know be counter cyclical and err more toward dollars and we're sitting at discounts or we're sitting you know, at very small premiums, you know, we would be more bullish on BTC. And the reason that we publish that on our website is we wanted people to see the metric that we're staring at. So, yeah, so that's a long-winded answer to your question, which is sort of, yeah, yeah, we are going to actively manage it. And, you know, one aspect is what is the credit coverage, you know and the other aspect is what is the mix between usd and btc do we have 10 percent of our reserves in usd irregardless of credit obligation and do we have 36 months or 24 months of dividends right so so they're both interesting factors to be managed i'm kind of the opinion with credit if you want strong credit like you know like creating chromium steel or stainless steel you want 20% to 30% chromium and iron and just a smudge of carbon. But is it 20% or is it 30%? That's the question of, do you have 24 months or 36 months of dividends? So we want to actively manage to create the strongest possible credit. And we're trying to figure out exactly what that alloy is. But the other piece is irregardless, is the company better if we're sitting on 55 billion of bitcoin and 5 billion in cash and if we had 100 billion of bitcoin do we want to be sitting on 10 billion dollars of cash even without thinking about the credit i think the answer to the question of how much cash is probably going to be driven by uh by market sentiment and the market premium and i i don't want to simplify it down to it's as simple as just looking at the premium to the 200 week moving average because a lot of people will come up with a few other metrics you you may have a number of your own metrics right and there's debate in the community about what's the best way to calculate whether bitcoin is is at the top of a cycle or at the you know at the bottom of a cycle but i think we're going to start to look at those signals and that will drive the allocation of cash flow you know if we sell a billion dollars of credit I don't think you'll see 100% BTC, zero USD as the norm. I think it'll be a ratio. And what the ratio is, it'll be a function of the equity capital markets, the Bitcoin markets, the credit markets. And what are people telling us? If the credit investors still want more cash, then we'll probably lean toward dollars because the credit markets want it, regardless of where BTC is. But if the credit is strong, and there's no issue there, and it's stable, then it will be a function of where is Bitcoin in the cycle? And what is what are the forward, you know, forward yield curves or the forward vol curves look like and, and that will vary.
Fong, do you have anything to add on the subject or any thoughts?
Yeah, I think we're at the one-year birthday of Stretch, which is a brand new asset class digital credit. At about nine months, we learned the hard way that we shouldn't let our left brain Bitcoin bull say that everything we can issue, we just pour into Bitcoin. And I think we've learned that holding US dollars makes a lot more sense. We also have learned a lot more about our investor base, the retail versus institutional base, the leverage they take on, what is important to them and so we've talked to a lot of them to figure this out uh i think reducing the rate when we uh see you know a strong bitcoin price a strong you know premium to the 200 week moving average makes sense right so i think that's something we consider doing too um so yes i i think we agree with all your points lynn that we need to look at the cyclicality we need to look at the demand And when you look at the price, the interest rate, how much U.S. dollars we hold, we'll be a lot more thoughtful and methodical this time around about growing the digital credit base. I'm excited to see Stretch get back to par so we can exercise all that we have learned.
Great. I appreciate the guidance. It's worth noting, you know, that with credit, we've noted that the market would probably rather pay us a lower dividend rate with more currency backing it than a higher dividend rate with more Bitcoin backing it. And so so there's this circularity there, which is if we if we you don't want to carry dollars because they underperform BTC, but you do want to carry dollars because otherwise you have to overpay to issue the credit. And so to find the sweet spot of how do you create strong credit that has a dividend that's somewhat better than junk bonds, that's compelling enough to have a high demand, but is lower, we could see people don't want the thing paying 14% if they don't feel secure, right? But on the other hand, a lot of our credit investors told us, I'd be happy to be paying you 9% if I just didn't have any anxiety. so you know finding our way to the right balance is is all about you know all consistent with the dynamic equilibrium because because uh if you find the right credit point then that lowers the cost of capital that lowers the hurdle rate which is better for the equity so the equity benefits if we issue the most efficient credit and the credit benefits and we know for sure that it's this balance of of dollars and btc and we know that we have been under weighted dollars before now we're in this this discovery and we're talking to our investors every week right content i'm like every day we're talking to them but every week there's a new announcement and so so every single time. We make an adjustment in the capital structure. We watch to see how the credit settles. Then we go and we talk to our investors to see how they feel about it. And of course, we have other moving parts like the Bitcoin price is a massive moving part of it if it falls $20,000 or rises 30%. But also SOFR and the monetary policy of the Fed is the second moving part and then the private credit markets and the equity capital market so so i think it's a moving target but uh but what we've learned over the past 12 weeks is is we need to actively manage those ratios and we need to be humble and maybe and this is a hard thing for a lot of people understand maybe the best way to buy the most bitcoin is not to buy the most bitcoin like if it was an 80 20 split or a 90 10 split we'll actually get more bitcoin over the long term because it's all about sustainable growth and and of course it's very difficult to explain this on x because people want you they don't like nuance of i'm gonna you know i'm going to sell one and buy 10 they want to hear that you're going to sell none and buy 11 and do it with money you conjured from a genie you know under the desk we don't quite have that thank you lynn next we have lance batanza from td carbon thanks that's a great segue to uh to my question over the years investors have come to associate strategy with a number of principles that at one point
seemed absolute but later proved more flexible in practice bitcoin monetization obviously one example. Today, management has been clear that it does not intend to issue stretch below par. My question is, under what circumstances would you reconsider that position? More broadly, how should investors distinguish between principles that are foundational to the model and those that are contingent on market conditions?
I think we learned that the market wants, they don't want volatility in their credit. They want loss of liquidity, low volatility, short duration, stability. They want to buy it around par. They want to sell it around par. They want to collect the dividend. That's what they want. And that's what they expect us to give them and and if we do that then they make a decision in 10 seconds i'm just going to buy a million dollars or i'm going to sell a million dollars if we allow it to flex plus or minus a dollar that order becomes a three-day process like i placed a limit order we've we've allowed it to flex 40 cents in the past people put in limit orders and they wait from they put in the order on Wednesday and they're waiting on Friday and the order isn't filled. And what would have been a five second decision became a three day decision. But if you let it flex plus or minus $5, we have an example like STRF. STRF is objectively a better credit instrument. Like it's 12X over collateralized. It's got super dividend stoppers and it's got non-payment penalties. And if you're a credit investor, in theory, it's 10x better. And yet it trades with 1 20th or 1 30th, the liquidity. And I scratch my head. I'm like, why is it nobody wants this thing? And so whenever people say, why don't you just let STRC float up two bucks or float down $2, I think, well, because I've already got that. It's called STRF or STRD, and it's got 1 30th or one fiftieth of liquidity and so the answer to the question is we're never gonna you know if it trades if you offered me 10 billion dollars to sell you the instrument at 99.99 and take one penny off i wouldn't give you the penny lance i would not give you a i would not knock off a penny if you put 10 billion dollars in front of my face because it's a matter of principle and credibility if we can't create it such that it trades at par and we can't sell it apart we're not going to sell it at all our back off our backup is we just do nothing you know the hippocratic oath do no harm right and if we can't like we're not going to sell stride we're not selling strike we're not selling strife we're not selling stream and we're not selling stretch right now and that's okay at some point stretch will return to par and the only question is how much money or time will we have to exert to get it to par but i guess i would say it's it's not worth doing if we can't do it right it's like like come back to kerosene it's like the recent standard oil was successful was because carrot because it was standard and it didn't blow up in the engine and it didn't burn you to death it didn't start a fire it used to be that people created oils and they were impure and like if you ever put bad diesel or bad oil in your fuel tank of a boat or a plane like it like destroys the engine so the impurities render the product act useless. So here's my analogy to you, which is if it's a little bit bad, I can either say, okay, well, here's some kerosene. You should test it in your own factory or in your own chem lab before you put it in the engine because it might blow up. And I put the disclaimer on it, or I could just not sell it to you. And my point really is if you can't create this stuff so it's pure, like it's got to be pure and it's got to be what the market wants or just sell nothing at all and if we can't create pure short duration credit at par we'd rather just sell nothing at all until we get it right because the demand is in my opinion it's a hundred x more for short duration credit 100x more and maybe the ultimate market is is 100x bigger and so it's like we're just playing to win here and it would be very easy to look it's like oh i could let it float between i could sell it at 98 or 97 some days or 99 what would happen would be the market would shrink by a factor of 100 and you would basically turn people from it's like what if your bank took a 1% commission every time you deposited money or they didn't and it was random and it came and it went and you weren't quite sure? Or what if the trading fee, it changed from five basis points to 5% randomly from week to week? It's like, yeah, it's like I put my hand on the light switch and sometimes i get a shock and sometimes i don't get a shock and it's like you don't want to touch the switch and so that's how we feel about this thing it's like you would be so angry at me you know if if it's like you bought it at a hundred you sold it at a hundred but you could have sold it at 105 or you bought it at a hundred but then you could have bought it at 98 it's like it's like that kind of thing it just destroys the product and we've discovered we've inadvertently tripped over what we think is is the magic product the greatest product in the world the marketplace wants us to strip the volatility off it they want it to trade at par they want it to be liquid that's our job if we if we punt if we abrogate on our responsibility it's just like someone shipping you a beer and saying well here's a six pack one of them is spoiled but the other five are good just check before you drink it's it's it's not acceptable right it's a failure right to to create it we're creating a failed flawed product and we're telling we're lowering our standards and telling ourselves it's okay, it's not okay. It needs to trade at par. We won't sell it below par. If we have to spend an extra billion dollars to get it to par, it's an extra billion. If it took an extra 2 billion, an extra 2 billion. If it took an extra 4 billion, spend 4 billion. It's like, how much is it worth spending to make the airplane that flies across the Atlantic without crashing on the way. It's like, just make the thing work, right? And that's what we've discovered. We've got a thing. Everybody wants it. We need to make it work. I can't guarantee you exactly how many dollars it takes for me to get it to work or how many days it takes me to get it to work. But what I can say is that it is so clear in our mind that this is what the market wants and this is what we can create and this is the thing that will make the company worth hundreds of billions and then trillions of dollars that there's nothing else worth considering. Everything else is a distraction, a waste of time. We just need this thing to work as designed.
Last but not the least, James Ransradden. thank you for having me on guys um i love seeing the 200 week moving average on the dashboard and it'd be great to see also like on-chain metrics that are complementary like the realized price and true market mean i think it gives a much greater indicator of support levels but i've got kind of a two-pronged uh question so like looking back over this cycle this is your guys second cycle uh what assumption about like the capital markets uh proved you guys wrong or the least certain that you expected and then as capital markets start to move on chain do you think this can create new opportunities for strategy whether through tokenized securities
which would obviously reach a broader global investor base or even issue a strategy stable point in the future is this something that you guys think about hey fong do you want to start yeah i can cover the first one maybe mike you'll cover the second one In our first bear cycle in 2022, as some might recall, we had secure debt that had covenants on it that were quite restrictive to the company. And we had a Bitcoin-backed loan that had a margin requirement on it. And our biggest lesson learned from 2022 was don't do either of those. And so here we sit in 2026, and we're fully convertible notes and preferred. And so that was a big lesson from 2022. And I think we upgraded our capital structure as a result. The biggest lesson so far from 2026 is the importance of holding liquid U.S. dollars to fund our dividend and to overfund our dividend so people have confidence in the preferred dividends. And I think we thought that liquid Bitcoin would be important. But what Mike mentioned earlier is that people who are holding these prefers don't look at Bitcoin the way they look at U.S. dollars. So that was a major lesson learned. And we did a lot of things in May, June that, you know, I think looking back at that, we can execute things better. So we learned a lot.
And so the next bear market, four years from now, wherever it is, we'll learn from that, too. yeah and i would add um i think uh yeah in the capital market sometimes the equity capital markets correlate with bitcoin and they trade in lockstep but sometimes the correlation is broken uh like uh with the ai bubble forming uh equity capital markets diverged from from uh the digital capital market and so they will converge and diverge and generally things that are good for risk assets are good for all of us but sometimes they'll get a boost from their from the demand for ai and then sometimes we'll get a boost as as a very pro bitcoin dynamics evolve so i think uh as a company we've realized that we're straddling the equity markets when the equity capital markets are rallying that's generally good for our equity but it's not necessarily good for our capital asset btc and so we're also straddling the credit markets and sometimes there are things that are credit positive or credit negative the way the yield curve moves and so far and then sentiment in private credit or other sorts of corporate credit they have their own dynamic and then there's the digital capital markets and that's bitcoin and it has its own dynamic and drivers and what we need to do is just be in a position to exploit and arbitrage the various opportunities and when one market is mispriced you know we're buying the cheap one selling the the well well valued one and then occasionally we just have to put the engine in reverse and go the opposite direction and i think that two three years ago we had a much simpler business model and now now we realize sometimes you sell credit, sometimes you buy credit, sometimes you sell capital, sometimes you buy capital, sometimes you sell equity, sometimes you buy equity. And the more nimble you are with regard to that, then the more shareholder value you can create. With regard to the issue of tokenization, I think the killer security to tokenize is digital credit. If you look at what's going on right now, people have been tokenizing money market funds, and they're yielding three and a half percent. And they put them in a looping protocols and everybody wants yield and yield drives the entire DeFi economy. But if you can plug a 10 percent yielding instrument into a tokenized asset instead of a 3 percent yielding instrument there's so much more energy that you can do a lot more with it so ultimately i think i think that uh the real interesting killer application is going to be looping digital credit either either stepping it up 2x 3x 4x or stepping it down uh stripping the vol and and if if you tokenize STRC and then you step it down and transform it, there's a market for 4% yielding yen as a yield coin or 5% yielding euros or 4% yielding Swiss franc or 6% yielding dollars. And the way you're going to get to that is you can't create that with money markets. You can't take a 1% yielding yen money market and step it up to 3% with any kind of economic responsibility or rationale. It's crazy. But you can take a 10% yielding or 12% yielding digital credit instrument and you can transform it into any currency, stabilize it, step it down, provide liquidity, give it daily liquidity or hourly liquidity and you can stream a yield and strip the ball off it. So I actually think that the more tokenized securities we see and the more money flows into that, the better that's going to be for digital credit. And I think that, you know what does the world want the world wants 200 well probably the world wants a trillion dollars worth of stable coin that pays six percent and what the world has right now is 250 billion dollars of stable coin that yields nothing right and then they jump through hoops trying to make the you know the stable coin that yields nothing yield something but uh and so how are you going actually create a trillion dollars of stable tokens that yield something that's more than sofer you know i you're going to do a digital credit so i so i think that that's really the killer thing with regard to all the other tokenized securities the real the idea the killer the killer idea of tokenization is creating a free market in custody and credit like if i have a million dollars of apple stock can i actually transfer it to a custodian that will pay me four percent yield on it because right now i don't get yield on it and if i have a million dollars of apple stock and my bank will give me a 40 advance ratio and charge me eight percent will someone give me an 80 advance ratio and charge me four percent so in theory you could see those markets form in practice I don't see them happening in the US right now. And there's still a lot of obscurity. There's a lack of clarity about what kind of tokenized use cases will be allowed for securities. But one thing is clear. Stable coins are going to be crippled in their ability to generate yield. So the path to generating yield and fixed income is going to be through tokenized securities, not through tokenized currency or, or, or the like. And I think we're really well positioned for that. And I think ultimately, it's the one thing that they're really good at and DeFi is they're really good at looping something 2x, 3x, 4x, or, or they're good at traunching risk and stripping it down to zero vol. So that's financial engineering tokenized. And the one thing you want to engineer is if I give you a 10 vol, 10% dividend yielding asset in dollars, then in DeFi, in theory, you can create any currency, any monetary instrument pegged to any currency, and you can step it up and step it down with transparency. And so I really see as something like STRC is like the universal fuel source for the digital asset economy. And that's really an opportunity for us should that economy become material. To be clear right now, it's only 0.1% of the money is in DeFi. So 99.9% of the money is TradFi. and so we don't need it and it won't and the truth is 100x more money is solving this problem in the credit markets and the equity capital markets but i do think that defy and digital assets and tokenization is interesting because the people involved are more progressive more innovative they move much faster they're much more creative they'll take risk they're not so crippled with tradition and custom and an incumbency that they they fear to do something which is an obvious thing to do and so all of the really cool innovative products will probably come out of the digital asset space first and then it becomes a regulatory struggle and a political struggle to see whether you can get approval to sell a compliant version of that thing in the capital market where you're operating and and you know we don't have any time to go into that that's a that's a a podcast in and of itself but that that's what i think thank you and just sorry i have a quick question as well on the 26th of june when stretch traded down to 70 is there any insight you had on that is that forced liquidations from the defy um or was it something else um tell me i i didn't hear the first part of your question because you cut out on the 26th of june when what on 26th of june when stretch traded down to i think 70 is there any insight you can give on that day was it forced liquidations or um yeah you know what i think happened is that there are a number of broker dealers unnamed and we can't even identify them all that were actually creating credit 3x or 4x credit against STRC under very favorable terms. So they were giving very high, like a 70% advance ratio or an 80% advance ratio against STRC based upon its previous trading dynamic. And then when it traded down and the all spiked i think that those entities uh change they dial back their credit lines from an 80 advance ratio to a 20 advance ratio or they pull those credit lines and they created um uh in essence the equivalent of a margin call or a liquidation event but see to call it a margin call would be misleading it's not like someone got over levered and margin called it was a second order thing, the credit lines creating the leverage got withdrawn. And one of the lessons we learned is it's important for us to offer the instrument in such a stable way so that the second order and third order credit lines backing the investor that took on the trade don't get pulled away from the investor right and that was that was kind of a it was an unexpected thing that we learned so i i it wasn't d5 by the way it you know this the simplistic notion would be oh yeah some retail guys over borrowed or some d5 degenerates like took on too much leverage that's not what happened. Some TradFi organization said, well, we'll give an 80% advance ratio when it's trading with a vol of less than 10. And then when the vol spiked to 20, they changed the advance ratio and it created this second order and third order rippling effect where you then had someone sell or liquidate and that created a downdraft in the price, which created another liquidation. And so it was a second order, third order reflexive contraction in credit in this system, we believe, that caused it to trade into the 70s. And that created, when it got into 70s, that created anxiety for first order investors that then reacted to it. so so it's kind of like an amplified reflexivity through a lot of different parts of the market all working at the same time on a novel asset thank you james thank you i'll turn the call over to phone for any closing remarks that brings a thank you thanks to thanks to the analyst uh both on the bitcoin side and the banking side for joining us thank you everyone for joining us for earnings call and looking forward to seeing you all again in three months
